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Is Netflix the AOL of Web Streaming?

Netflix' erratic and panicky behavior this past year is telling us that Netflix' leadership fears they may becoming the AOL of web streaming.

Remember AOL was the company that led the dial-up narrowband market, but fell way short in transitioning to broadband success. (Investors remember AOL-Time Warner, dubbed the worst merger of the century.) Meanwhile, Netflix is the fallen star company that led the mail-DVD business, but now is struggling to repeat its offline success online with web streaming.

If one looks at Netflix' panicky behavior over the last year or so, a clear pattern emerges that Netflix' own management is very concerned about how it will successfully transition from DVD mail-order leader to successful web streaming provider.

Consider the cumulative evidence.

Fall of 2010, Netflix strongly lobbied for the FCC's Open Internet Order/net neutrality policy, to ban broadband usage-based pricing as per se anti-competitive, so that Netflix would not have any video distribution costs and would have a big cost of distribution advantage over broadband facilities providers. The FCC gave Netflix a half a loaf, declaring (para 76) that paying for priority may be discriminatory, while allowing broadband providers to employ usage-based pricing (para 72).

In early July 2011, Netflix' General Counsel screamed in a WSJ op-ed: "Why Bandwidth Usage Pricing is Anti-competitive," despite the FCC concluding the opposite seven months earlier. Obviously Netflix' leadership did not like the hand the FCC dealt it.

July 12th 2011, Netflix' CEO shocked their customers in announcing a 60% price increase for a bargain service -- with no warning. This prompted ~13,000 irate comments to their blog post announcement and triggered material customer cancellations of Netflix service. Obviously, Netflix' leadership looked ahead and did not like the economics of its original pricing model.

September 19th 2011, Netflix jerked its customers around again requiring them to sign-up for two accounts and credit card charges, one for DVDs and another for streaming, essentially delegating to their customers the work that Netflix' own IT and customer care divisions should do for its customers.

October 10th 2011, Netflixwhipsawedeveryone yet again with acurt 180-degree-reversal announcementthat Netflix would no longer be splitting the company into separate DVD and streaming businesses.In just three months, Netflix’ leadership managed to majorly jerk around its investors and customers threedifferent times. Netflix management clearly was concerned and highly-confused about its best business path forward.

In December 2011, Netflix ran to Washington yet again for rescue, this time asking Congress to pass a special Netflix law to lessen consumer privacy protections so Netflix could partner with Facebook and share people's viewing histories publicly via Facebook -- something video competitors cannot do under a I980s privacy law.

Finally, this week we learn that Netflix, a long-time critic of facilities-based video providers, is reportedly proposing to partner with cable companies to have Netflix be offered over cable like an HBO-like channel.

In sum, is this the behavior of a company that knows where it is going and likes its prospects? Or is this the panicky behavior of a company that is extremely concerned about its prospects of successfully transforming from an offline DVD business model to a broadband web streaming business model -- in flight?

Netflix' panicky behavior belies its own fears that it is becoming the AOL of web-streaming.